Bitcoin and Cryptocurrency Technologies

this interlocking interdependence between the security of the block chain, a healthy mining
ecosystem and the exchange rate.
Because of the cyclical nature of this three‐way dependence, the existence of each of these is
predicated on the existence of the others. When Bitcoin was first created, none of these three
existed. There were no miners other than Nakamoto himself running the mining software. Bitcoin
didn’t have a lot of value as a currency. And the block chain was, in fact, insecure because there was
not a lot of mining going on and anybody could have easily overwhelmed this process.
There’s no simple explanation for how Bitcoin went from not having any of these properties to having
all three of them. Media attention was part of the story — the more people hear about Bitcoin, the
more they’re going to get interested in mining. And the more they get interested in mining, the more
confidence people will have in the security of the block chain because there’s now more mining
activity going on, and so forth. Incidentally, every new Altcoin that wants to succeed also has to
somehow solve this problem of pulling itself up by its bootstraps.
51‐percent attack. ​Finally, let’s consider what would happen if consensus failed and there was in fact
a ​51‐percent attacker​who controls 51 percent or more of the mining power in the Bitcoin network.
We’ll consider a variety of possible attacks and see which ones can actually be carried out by such an
attacker.
First of all, can this attacker steal coins from an existing address? As you may have guessed, the
answer is no, because stealing from an existing address is not possible unless you subvert the
cryptography. It’s not enough to subvert the consensus process. This is not completely obvious. Let’s
say the 51 percent attacker creates an invalid block that contains an invalid transaction that
represents stealing Bitcoins from an existing address that the attacker doesn’t control and transferring
them to his own address. The attacker can pretend that it’s a valid transaction and keep building upon
this block. The attacker can even succeed in making that the longest branch. But the other honest
nodes are simply not going to accept this block with an invalid transaction and are going to keep
mining based on the last valid block that they found in the network. So what will happen is that there
will be what we call a fork in the chain.
Now imagine this from the point of view of the attacker trying to spend these invalid coins, and send
them to some merchant Bob as payment for some goods or service. Bob is presumably running a
Bitcoin node himself, and it will be an honest node. Bob’s node will reject that branch as invalid
because it contains an invalid transaction. It’s invalid because the signatures didn’t check out. So
Bob’s node will simply ignore the longest branch because it’s an invalid branch. And because of that,
subverting consensus is not enough. You have to subvert cryptography to steal bitcoins. So we
conclude that this attack is not possible for a 51 percent attacker.
We should note that all this is only a thought experiment. If there were, in fact, actual signs of a 51
percent attack, what will probably happen is that the developers will notice this and react to it. They
will update the Bitcoin software, and we might expect that the rules of the system, including the
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